Property held in CA General Partnership. Deed lists Partnership name as the owner. 3 equal owners make up the partnership A, B, C. Can partner A agree to sell the property to partner B for an amount they both agree is a fair market value. Partner C is refusing to interact or otherwise make decisions regarding this property but has been included (Via email) in the valuation and plans to transfer/sell the property. There is no other operating partnership agreement so the General CA partnership model would apply. Can one or two partners complete the sale/transfer without the third partners participation? All proceeds would be paid to the partnership before dissolution of the partnership.
1 Answer from Attorneys
There seem to be two questions here--one relating to whether the purported transfer would be effective, i.e. whether Partner A can execute a deed of the partnership property that will be fully effective to transfer title from the partnership to Partner B. I think the answer is "perhaps".
A lawyer would want to inquire into the partnership agreement -- even though it is not in writing, it may be oral or even implied from the parties' conduct -- to see what restrictions are placed on the rights of individual partners to deal with partnership property and how management responsibilities were divided. Ordinarily, each partner in a general partnership has full and separate authority to deal with partnership affairs, including sale of assets, but only "in the ordinary course of business" and only to the extent that authority is not limited by the partnership agreement. My concern relates to whether this transaction would meet the "ordinary course of business" criterion. Since it is such a major step and seems like an antecedent to dissolving and winding up, I'm not prepared to say for sue that it meets this test.
Then there's the question of whether the transaction treats the partnership and Partner C fairly, as each partner has a duty of "good faith and fair dealing" in connection with partnership business. Whether this test is met might also lead to litigation with Partner C, even if the value is fair, as he might argue that major appreciation was right around the corner, or something else.
All in all, I think it's about 50-50 whether the proposed transaction would avoid litigation, and I would advise you to talk to a local partnership attorney who can go over the "soft" facts like partner C's personality etc. before attempting this transaction. Sorry I can't be more specific.